ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has challenged the fixing of liquefied petroleum gas (LPG) price at Rs900 per cylinder as desired by the petroleum ministry against 27 per cent cheaper product available in the market.

The regulator has not only questioned the exorbitant pricing proposed by the Ministry of Petroleum and Natural Resources (MP&NR), but has also challenged its fundamentals in the absence of a formal approval of the Council of Common Interests (CCI) and litigation in courts. It believed that the pricing mechanism desired by the ministry was fundamentally flawed and without any justification, and could create an upheaval in the country.

In a letter on March 24, the petroleum ministry asked Ogra to fix the price of 11.8kg cylinder of LPG at Rs895 for domestic and commercial consumers and reported that the LPG policy had been cleared by the CCI. In its response, Ogra said it could not fix higher consumer price when it was freely available at cheaper rates in the market.

“It is highlighted that current LPG consumer price prevailing in the market for 11.8kg cylinder, as per Pakistan Bureau of Statistics (PBS) report of March 31, 2016, is at the minimum of Rs660 while MP&NR is determining the same at Rs895.”

The Ogra further questioned that the price break-up given by the ministry, LPG base stock price had been taken at Rs41,000 per tonne against its current market price quoted by local LPG producers stood at Rs34,935 and Saudi Aramco CPO (contract price offer) price stood at Rs35,433 per tonne.

“It is explicit that the price as advised by the petroleum ministry, if notified, shall bring economic distortion and shall disturb the market, thereby creating upheaval in the country,” Ogra said.

The Ogra also put on record some inconsistencies in the CCI decision of Feb 29, 2016 and the petroleum ministry’s desire for LPG price fixing. “It is pointed out that LPG policy 2015 forwarded by MP&NR suffers from the fundamental flaws and does not reflect true market dynamics, the regulator wrote.

It said the indigenous LPG for domestic and commercial sector had been decided to be regulated. LPG import has been proposed for industry and auto sector and the same has been decided to be deregulated. “Practically, it is impossible to distinguish the gas stock source and restrict its utilisation for the specific purpose. Therefore, price regulation along with deregulation cannot be practically implemented at the same time.”

Ogra also highlighted that margins for LPG marketing and distribution in the price had been taken at Rs24,000 per tonne by the petroleum ministry which did not seem to be supported by break-up or rationale on the basis of cost structure of marketing companies and in its absence, price reasonability could not be assured to incentivise the investors and protect the interest of the consumers.

Moreover, the petroleum ministry had not provided any mechanism or price indicators or period for review of LPG price to reflect true market trend. “Also, no checks and balances have been placed for the price stability,” Ogra said, adding, “Notification of LPG price retrospectively is not comprehended.”

Ogra said the official record suggested that the CCI considered the summary submitted by the petroleum ministry of Aug 25, 2015 and approved “LPG (Production and Distribution Policy, 2015, in principle” and directed to amicably resolve the outstanding issues with government of Khyber Pakhtunkhwa.

“It apparently transpires from the above decision that CCI has only approved the said policy (that too only in principle) and not the formula proposed by petroleum ministry.” As if that was not enough, it has also been pointed out that Lahore High Court in a writ petition (Petition No. 613/2012) had granted stay (in December 2012) on the LPG consumer prices determined and notified by Ogra and the case was still sub judice.

Also, the same court in February 2013 on another petition (Petition No. 3361/2013) suspended the notification of February 2013 of the petroleum ministry pertaining to imposition of levy on LPG and “the matter is also sub judice”.

On the basis of facts on ground, Ogra recommended that the whole matter should be deliberated upon at appropriate level with presentation of all facts and figures as a whole keeping in view consumers interests and accordingly advises Ogra for implementation.

The regulator also pointed out that it could not register LPG distributors due to absence of any enabling provision in Ogra ordinance and hence the relevant provision in the LPG policy should be deleted or necessary amendments be made in the Ogra ordinance enabling the authority to undertake such activity.

In view of the above issues, the petroleum ministry “is requested to take up the matter with the competent forums and accordingly advise Ogra for implementation”.

Interestingly, the government had deregulated the LPG business in June 2000 and never intervened in the market when retailers and distributors enjoyed heydays with prices of their choice. The regulatory functions of the LPG were subsequently transferred to Ogra in March 2013. The regulatory role was, nevertheless, limited only to the extent of ascertaining ‘reasonability’ of LPG price without any powers to penalise overcharging.

The LPG policy mechanism was thrice changed in 2006, 2011 and 2013 but the petroleum ministry kept itself absolved from any responsibility as product prices skyrocketed in winters as Ogra’s powers remained confined to issuing advisories to the provincial governments to intervene without positive outcome to consumers.

The new policy also entailed continuation of petroleum levy on LPG and to allow gas companies and third parties to operate LPG air mix plants to provide the product to far-flung and hilly areas. It said the locally produced LPG would not be allowed for use in vehicles and industrial use but LPG refuelling stations and the private sector could utilise imported LPG in vehicles and the industry.

Published in Dawn, April 9th, 2016